About "picking tops and bottoms"

Picking tops and bottoms is statistically hard for me. :slightly_smiling_face:

I don’t recommend giving up a technique that is profitable and which does not involve excessive risk of ruin.

I suspect when you look back at charts of old trades you will see many places where you made a completely correct entry at a reversal point but two non-obvious things will be apparent with more results in your log. The obvious stuff I outlined already - very low win rate etc.

Firstly that you will realise that in 2021 you would not be taking many of the trades you happily took in 2020. This is an aspect of the subjectivity of the TA required for reversals trading. Not only is every reversal different but even the same trader will often struggle at a later date to TA the same chart in the same way to get the same result.

Secondly, you will see that the winning trades could have been run in a different way when the reversal led into a new trend. These will be the trades that brought you the biggest returns. Many times, entering right at or right after the reversal point was unnecessary risk and irrelevant to the net performance of trades along the trend. Especially bearing in mind that in a trend you can pyramid your initial trade when it reaches break-even, and then pyramid the second trade when that reaches break-even and then pyramid the third trade etc. etc. - this rarely presents in a range or channel trade.

At that point, I suspect you will decide to make your trading easier, more predictable and more consistent by just taking the trend trades.

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Dangerous things to avoid if trading reversals -

over-focus on entry - This leads to intense research and experimentation with very specific candlestick patterns, based on over-confidence that these predict the future price action and trade outcome. They don’t. Many of them look great on a chart and there is almost always one of these at the reversal point in retrospect. The trouble is they are also found mid-trend where they signified nothing at all.

Also worth being aware that almost all candlestick patterns were recognised and researched in markets with an overnight closed session. So the entire market stops trading at the same time, conducts a review at the same time and then starts trading again at the same time. The immediate effect is that naturally opens can be miles away from closes and this gap is often crucial in identifying and using candlestick patterns. Overnight closes do not occur in forex.

blind faith in indicators - Similar to the above, but its just a different kind of rabbit hole. Picking reversal points seems very akin to predicting the future. Indicators are often touted as a way to predict the future. They’re not. But predicting the future seems to be the way to make reversal trades work so its a natural error in logic. But it won’t work.

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Do you really use no indicators at all? Sometimes ( considering other factors additionaly) they help you to spot oversold/overbought areas for an entry.
Another option is to look on a lower time- frame for an entry point.

Thanks QuadPip. When i say channels, i mean a visual descending channels that i identify by looking at the raw chart since i don’t have access to indicators. I wouldn’t mind using 50 100 and 200 SMA’s as i’m aware currency pairs are influenced by those levels where they may find support or resistance, similar can be said by fibs but i’m at work during the day so most if not all my trades are taken from my phone, so i’ve been forced to learn charts as they come if you like, since the app i use has no indicator support, but hey-ho as long as i’m profitable then it’s ok.
Thanks for the ‘market structure trading’ tips. I’ll be sure to check that out!
Nick

I see what you mean by waiting for confirmation of the new direction rather than the anticipation. I just guess for me when i do that the price will move in the way i think enough for a confirmation, i enter and then it soon changes and after i’m stopped out hindsight just shows what i thought was the signal to be either a fakeout or just good old fashioned volatility. More experience needed i guess.

Great read. Thanks Tommor. Interesting you mention how i will probably trade differently in 2021, i also imagine i would too given the new experiences i will have had, and will look back on my old trades, winners and losers, with a more knowledgable head.

When it comes to candlestick patterns and reading them for entry signals - i tend not to listen or take too much notice of candlestick patterns, ‘the 3 bar play’ and whatnot, since i find that anything can happen, you’ll get a bullish engulfing candle met by a bearish engulfing candle next and all the things that contradict what the previous candles were supposed to be suggesting. I’d rather just look at the flow of the whole chart from 1w 1d 4h etc zooming in to 30 mins depending on each trade and coupled with market incentive will take it from there.

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Hi. Well if it was up to me i’d use 50 100 and 200 SMA and maybe fibs given that they can be used to plot or suggest upcoming support/resistance levels. But the way i trade is normally while im at work so i use my phone which the mobile app doesn’t have instrument support, so i’ve had to learn to read graphs without them. I’m getting better at it though so it’s getting easier. though some indicators would be nice!

You could use mobile MetaTrader4 on your phone. Thats great, you can also load some indicators on the screen and all the other usefull features (Mov.Av,Bollis,…), also demo accounts available

So you can trade anywhere when you are on the way- in the subway, on the skiing lift, on the beach, waiting for the train…

And i give you the guarantee ( i speak from experience), that 80% of such “impulsive” trades are loosers…:skull:

Hello Nick,

By identifying tops and bottoms you have climbed up only one step. There are still two steps you have to follow. I will tell you the process.

  1. There should be enough spike or dip for reversal to happen.
  2. Price level should come around support/resistance. If it is down-trend, then the price should have reached the previous support level. For up-trend, vice versa.
  3. There should be a clear signal of rejection at the support/resistance level ie hang man or hammer at bottom. After the rejection signal, then enter the trade as the rejection itself suggests there are buyers or sellers waiting for the reversal to happen. The rejection candle should have twice wick of actual body.

I hope this will improve your winning trades at least by 80%.

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Not to forget candles “Tweezer top/bottom” as a rejection signal…
Another “helper” is a so called “Divergence” pattern

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Divergence is I think seen on indicators. I never use any indicator as they are lagging and never show what is going on right now. I use price action.

I used to have other apps with instruments but then it became annoying having to constantly switch apps and remember the number to to last pip setting stopS and TPs etc so it became more annoying that useful.
I use my phone because I can’t get the desktop version up while at work. I’m usually very busy and can’t be seen doing that it would be inappropriate. But I don’t impulse trade. For me that’s the same as gambling. I like to gather information about the markets. Check the economic calendar, find out market incentive and the overall mood, so using my phone would never persuade me to act impulsively, it’s just useful for if you can’t access a desktop

The only candles I really listen to is a tweezer top like you said, or just a general double tops where the price tests resistance twice and rejects twice, given that generally the further apart the tops the stronger the resistance. Otherwise i find candles a bit hit and miss, Giving lots of false signals etc. I can find lots of examples where contradictory signals are given next to each other just reading candles alone, although I’m aware that higher timeframes tend to be more reliable. 4h or 1D etc as opposed to 5-15 mins where you tend to get a lot of “noise”

You are absolutely right- such sudden trades are pure gambling. Thats the danger with smartphones and MT4 on it.

@Kashmaster

How can a currency pair be oversold or overbought ?
A stock maybe but a currency ?
Really ?

To me this is the best way to trade price action. You are essentially trading based on swing highs and lows on the 4 hour chart. I use daily and 4 hour swings as these are good indications to me where liquidity lies, and that’s what drives price movement. With the exception of 5, 13, and 50 EMAs that I use for direction and entries/exits, I keep my charts clean. (Edit) After reviewing your trade again, and this is only what I would do, notice the rejection twice at 1.29000. I would at least take some profit from the trade if it reaches that level and move my stoploss in profit to be on the safe side just in case price reverses.

Haha that trade idea you mentioned ahout the 1.2900 level… i saw the same thing and allllmost took it, but thinking about it i figured it to be midway in the decsending channel so didn’t feel comfortable enough in the end, and after keeping up with it am glad because price action soon took another turn to the bottom of the channel.
Sadly i wasn’t around for that move! so will have to wait to see what opportunities come around for the pair next.
It’s also interesting you pointing out what i’m doing. I’ve heard of swing high’s and low’s but didn’t specifically know what they were, so it’s good to know i’m swing trading, if that’s the right term?